Government considered pooling loss-making tracker mortgages – IMF

The Government has explored pooling loss-making tracker mortgages in state-guaranteed asset-backed security structures “for repurchase with various counterparties”, the IMF said in its final review under the bailout, issued yesterday.

The review calls for greater progress in addressing problems in the banking sector, particularly in relation to mortgage arrears and new lending.

"Banks . . . need to rebuild their profitability, although in the context of low ECB policy rates, they face challenges from the structure of their assets," the IMF said. Between them, AIB, Bank of Ireland and Permanent TSB have €48 billion in Irish-based tracker mortgages weighing down their balance sheets, with Permanent TSB worst affected.

The pooling solution considered by the Government was one of a range of options, according to Craig Beaumont, Irish mission chief. He acknowledged it would be "difficult" to attract private funding for such a structure at sufficiently low rates, adding that "there is an obvious role for European support" on the issue.

“A wider European solution would be beneficial to economic recovery across Europe,” he said.

The review’s authors found that banks’ progress in resolving non-performing loans has been “very slow” and that this, along with weak profitability, is hindering a return to functional lending. The writers singled out Permanent TSB as facing “the greatest challenge” because it is not expected to break even, after provisioning expenses, until 2017.

They believe that fully addressing non-performing mortgages will ease fears around the “shadow housing inventory” created by underwater mortgages, thus increasing turnover in the market and reducing households’ uncertainty about their wealth. This would, in turn, support recovery in domestic demand, according to the analysis.

“These benefits could however be reversed if widespread redefaults were to occur or debt service discipline were to weaken further,” the authors noted. They also said this year’s residential property price rises have “yet to be tested by the depressive effects of a potential rise in disposals of repossessed properties”.

The IMF proposed speeding up the repossession process by assigning specialist judges to deal with such cases but the Coalition decided against this.